Navigating UK Inheritance Tax in 2024: What You Need to Know

Tuesday 17 September, 2024

As we approach the next budget, in October 2024, many are speculating about potential changes to UK inheritance tax (IHT). This anticipation underscores the importance of understanding the current tax landscape, as well as being prepared for any adjustments that may arise. 

Inheritance tax is a complex area, and with potential changes on the horizon, it’s more crucial than ever to speak to a financial adviser to seek professional advice to ensure your estate planning is both efficient and effective.

Potential Changes in the October 2024 Budget

The UK government periodically reviews and updates tax policies, including inheritance tax. In the upcoming October 2024 budget, there may be significant changes to IHT thresholds, reliefs, and rates. 

While no official announcements have been made, there is speculation that the government may adjust the Nil-Rate Band (NRB) or introduce new rules affecting high-value estates. It is advisable to stay informed and consult with a financial adviser who can help you understand the implications if or when any new legislation is announced.

Current Inheritance Tax Bands and Rates for 2024

As of 2024, the inheritance tax structure remains as follows:

Inheritance Tax Band		Rate
Nil-Rate Band (NRB)	£0 - £325,000	0%
Above Nil-Rate Band	Over £325,000	40%
Reduced Rate for Charitable Giving	Over £325,000	36% (if 10% or more of the estate is left to charity)

In addition to the NRB, there is the Residence Nil-Rate Band (RNRB), which applies when passing on a family home to direct descendants. This can increase the tax-free threshold by up to £175,000, potentially allowing for a total of £500,000 that could be charged at 0% per individual. 

However, for estates valued over £2 million, the RNRB tapers off, making estate planning more intricate for larger estates. Tapering off occurs at a rate of £1 for every £2 over £2 million.

The Complexity of UK Inheritance Tax

Inheritance tax in the UK is notoriously complex, with a multitude of factors influencing how much tax may be due. Differences in tax treatment exist based on marital status, with distinct rules for singles, married couples, civil partners, and co-habitants. 

Moreover, the presence of children, grandchildren, or charitable donations can significantly alter the tax landscape. 

For instance, married couples and civil partners can transfer any unused NRB to their surviving spouse or partner, effectively doubling the amount that can be passed on tax-free. However, co-habitants do not enjoy the same privileges, making it essential to understand your specific situation.

The Importance of Accurate Estate Valuations

Accurate estate valuations are the cornerstone of effective inheritance tax planning. Underestimating the value of assets can lead to unexpected tax liabilities, while overestimating can unnecessarily complicate the process. 

Valuing an estate involves considering property, investments, personal possessions, and even certain gifts made during the individual’s lifetime. Given the intricacies involved, obtaining a professional valuation is often necessary to ensure compliance with HMRC requirements.

Gifts, Reliefs, and Exemptions in the Inheritance Process

Gifts, reliefs, and exemptions are crucial components of the inheritance tax process. For example, certain gifts made more than seven years before death may be exempt from IHT, while others are subject to taper relief, reducing the tax owed based on how many years before death the gift was made. 

Timing of Inheritance Tax Payments

Inheritance tax must be paid within six months of the end of the month in which the person died. If the tax is not paid by this deadline, HMRC charges interest on the outstanding amount. In some cases, it is possible to pay the tax in instalments, particularly when the estate includes property or certain shares. 

This flexibility can ease the financial burden on beneficiaries, but it requires careful planning and, often, the guidance of a financial adviser.

How much does inheritance tax cost?

Here is a table detailing how much inheritance tax would be paid on estates worth £1 million, £2.5 million, and £9 million under the current 2024 UK inheritance tax bands and rates (these examples do not include the effects of the residence nil rate band): 

Estate Value	Nil-Rate Band	Taxable Amount	Inheritance Tax Rate	Inheritance Tax Due
£1 million	£325,000	£675,000	40%	£270,000
£2.5 million	£325,000	£2,175,000	40%	£870,000
£9 million	£325,000	£8,675,000	40%	£3,470,000

The Role of a Financial Adviser in Inheritance Tax Planning

Given the complexities and potential for legislative changes, consulting a financial adviser is not just advisable but essential. A financial adviser can provide a personalised assessment of your estate, helping to optimise your tax position while ensuring that your wishes are honoured. 

They can guide you through the maze of inheritance tax rules, assist with estate valuations, and help you understand the impact of gifts, reliefs, and exemptions on your tax liability.

Moreover, a financial adviser can keep you informed about potential changes in legislation, ensuring that your estate plan remains relevant and effective. Whether you are considering making significant gifts, setting up trusts, or simply ensuring that your loved ones are provided for, professional advice is invaluable in making informed decisions.

Neil Homer, Chartered Financial Planner, Stafford, says:

“Advice is crucial. Having a financial plan enables you to understand your position and decide if you want to take any action. You can decide whether to involve your family in that action or not. I work closely with other professionals on that financial plan as wills and trusts are important, especially when executed correctly by a solicitor.”

In Summary

Inheritance tax is a complex and ever-evolving area of UK law. With potential changes looming in the 2024 budget, now is the time to review your estate plan. Understanding the current inheritance tax bands and rates, as well as the various reliefs and exemptions available, is crucial. 

However, due to the intricacies involved, speaking to a financial adviser is one of the most prudent steps you can take. Their expertise will ensure that your estate planning is robust, tax-efficient, and aligned with your personal wishes and the latest legal requirements.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. This is for information only and does not constitute advice. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.

Source: https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/a-guide-to-inheritance-tax

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